DAIRY PRODUCTS: SALES AND CONSUMPTION

February 2017

1

Long-term Rise in Commercial Sales of Dairy Products,

Both Domestic and Export

100

120

140

160

180

200

220

240

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Commercial Disappearance of Milk in ALL Dairy ProductsBillion Pounds of Milk (Milkfat Equivalent Basis)

Domestic

Domestic

+ Export

Both Total and Domestic Commercial Disappearance Grew in 2016

Total: up +3.0% in 2016

Domestic: up +2.9% in 2016

Commercial disappearance includes civilian and military purchases of milk and dairy products for either domestic or domestic plus export use. It is calculated as beginning commercial stocks + production + imports –

government net removals (in years when there were removals) – commercial ending stocks. Domestic disappearance equals total commercial disappearance minus commercial exports. Disappearance is a residual figure

and therefore can be affected by any inaccuracies in estimating milk production, on-farm use, stocks, and imports.

Source: USDA ERS

2

Dairy Remains a Vital Part of People’s Lives Milk Used in All Dairy Products Increasing on a Total Volume and Per Capita Basis

151

208

199

5199

6199

7199

8199

9200

02

00

1200

2200

3200

4200

5200

6200

7200

82

00

9201

0201

1201

2201

3201

4201

5201

6

Domestic Commercial Disappearance of ALL Dairy Products

Billion Pounds of Milk (milkfat Equivalent Basis)

570

627

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

20

12

201

3

201

4

201

5

Per Capita Dairy Products Available for Consumption

Pounds of Milk

Average Annual Growth (1995-2015): 1.5% Growth (1995-2015): 57 lbs of dairy (milk equivalent)

Source: USDA ERSNote: 2016 Per capita numbers released in Sep 2017

3

4

CHEESE

7,203

12,377

7,152

11,744

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Cheese Commercial Disappearance up +2.7% in 2016

Domestic Cheese Up +3.4% in 2016

American’s Passion for Cheese is Evident in its Continued Growth.

Increases in Domestic and Exports.

5

Cheese Commercial Disappearance (Mil LBS)

Source: USDA ERS

Domestic

Domestic

+ Export

26.7

35.1

10

15

20

25

30

35

40

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Per Capita Cheese Consumption (LBS)

Cheese Consumption has Increased by 8 LBS Per Person

Since 1995

Long-Term Growth in Per Capita Cheese Consumption

6

Source: USDA ERS

Note: 2016 Per capita numbers released in Sep 2017

11.69 14.01

10.03

14.47

5.23

6.85

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Italian Cheeses (Primarily Mozzarella) have Surpassed

American-Style Cheeses in Sales

7

Source: USDA ERS

Per Capita Cheese Consumption (LBS)

Italian VarietiesMozzarella, Other Italian

American-style CheeseCheddar, Monterey, Jack, Curd

OtherCream, Swiss, Hispanic,

Muenster, Blue, Other

Note: 2016 Per capita numbers released in Sep 2017

2.0%

3.1%

American-style Cheese Other Cheese (Italian/Specialty)

Growth in Both American-Style and

Other than American (Italian/Specialty) Cheese

Cheese Commercial Disappearance

Average Annual Growth 1995-2016

Source: USDA ERS

8

U.S. Cheese Consumption High but has Room to Grow.

Cheese Consumption Low in Many Asian and African Countries.

0.2

0.7

1.3

2.9

4.4

4.9

5.7

8.4

8.4

9.3

9.5

10.4

12.6

17.4

18.3

19.4

19.6

20.1

26.7

26.9

27.1

27.6

28.4

28.4

China

Mongolia

Zimbabwe

Columbia

S Africa

Japan

Kazakhstan

Mexico

Brazil

Ukraine

Egypt

Iran

Russia

Uruguay

Turkey

New Zealand

Spain

Chile

UK

Slovakia

Croatia

Canada

Argentina

Hungary

28.4

29.5

30.4

32.8

34.4

35.1

35.5

35.9

36.6

37.3

40.1

40.3

43

44.8

45.6

47.4

47.4

48.1

50.3

53.4

54.2

57.5

57.8

58.9

59.1

Hungary

Australia

Ireland

Belgium

Bulgaria

U.S.

Poland

Estonia

Czech Republic

Israel

Netherlands

Lithuania

Norway

Latvia

Sweden

Italy

Austria

Switzerland

Luxembourg

Cyprus

Germany

Iceland

Denmark

Finland

France

2015 Per Capita Cheese Consumption (LBS)

Source: International Dairy Federation and Statistics Canada

9

Cheese Growth Tied to Healthy Performance in a Number of

Areas

Domestic and exports

Natural cheese

Breakfast foods

Pizza

Convenience – shreds, snacking cheeses

Familiar giants – cheddar & mozzarella

Artisan products

Bolder flavors

10

FACTORS HELPING TO GROW CHEESE SALES

11

BUTTER

1184.1

1922.7

1139.6

1888.1

0

500

1,000

1,500

2,000

2,500

1995 1998 2001 2004 2007 2010 2013 2016

12

Butter Commercial Disappearance (Mil LBS)

Commercial Sales of Butter are Growing

Domestic

Domestic

+ Export

Growth in Both Total (+4.5%) and Domestic (+4.7%) Commercial Disappearance for 2016

While Butter Exports were Down in 2016, the export market increased over the last 4 months (Sep-Dec)

Source: USDA ERS

4.6

5.6

0

1

2

3

4

5

6

7

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

13

Per Person Butter Consumption (LBS)

2015 Per Capita Butter Consumption is at its Highest Point (5.6 LBS) Since 1969

Butter has Made a Comeback With Impressive Consumption

Increases

Source: USDA ERS

Note: 2016 Per capita numbers released in Sep 2017

Butter’s Growth Linked to Science, Innovation and Taste Profile

Product simplicity ties to real, natural, fresh trend

Taste/flavor that product adds to other foods

Culinary-inspired use of butter

Innovation – flavors, spreads, hand crafted, European-style

Science indicating no link between saturated fat and increased risk of heart disease, stroke, diabetes, death

Desire to limit/eliminate trans fats of margarine

Viewed as healthier alternative

FACTORS HELPING TO GROW BUTTER SALES

14

15

YOGURT

1646

4685

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: USDA NASS

U.S. Yogurt Production (mil lbs)

Long-term Growth in U.S. Yogurt Market With Recent Dip

16

Small Decline (-1.2%) in Yogurt Production for 2016

-3.5%

-0.9%

4.1% 4.8%

7.0%

9.0%

15.4%

8.5% 8.0%

13.0%

7.9%

5.3%

2.7%

7.5%8.9%

2.2%3.4%

6.8%

0.8%

-0.3%-1.2%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: USDA NASS

U.S. Yogurt Production (Mil LBS)

% Change vs Previous Year

Yogurt Market Softening in 2015-16

17

6.1

14.7

5

7

9

11

13

15

17

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: USDA ERS

Long-term Growth in U.S. Yogurt Market

Per Person Yogurt Consumption (LBS)

18

Note: 2016 Per capita numbers released in Sep 2017

0.2 3.5

6.3 7.3

11.4 14.9 15.0 15.8

18.3 18.3 18.7

23.8 23.8

26.2 27.1 28.6 29.5

36.3 38.1

44.0 46.4 47.3 48.4

51.0 57.4

62.7

India

South Africa

Japan

China

Russia

United States

Mexico

Taiwan

Australia

New Zealand

Greece

Norway

Czech Republic

Ireland

Germany

Turkey

Switzerland

France

Denmark

Portugal

Austria

Sweden

Saudi Arabia

Finland

Netherlands

United Arab Emirates

24.2

12.1 9.0

4.0

U.S. Yogurt Market is in its Infancy Relative to Many Other

Countries

Source: Datamonitor Database

Annual Per Capita Consumption (lbs) 2014

Average per

person 2014

yogurt

consumption

was14.9 lbs in

U.S.

19

Yogurt’s Strong Health Profile has Built Long-term Growth.

More Recently, Competitive Challenges Emerging

Yogurt overall health properties,

including digestive health

Yogurt drinks, yogurt-based smoothies

Breakfast and snacking occasions

Larger tub sizes/ingredient usage

Innovation – new segments (e.g.,

Australian, Icelandic), new flavors,

new textures

Maturing of Greek segment

Competitive breakfast space including

more portable options

POSITIVE IMPACT ON YOGURT SALES NEGATIVE IMPACT ON YOGURT SALES

20

21

MILK

54,580

49,575

40,000

45,000

50,000

55,000

60,000

65,000

1995 1998 2001 2004 2007 2010 2013 2016

U.S. Fluid Milk Sales Slipping, Larger Drop-off in 2011-14

*Source: USDA ERS 1995-2015; 2016 data reported by USDA AMS

22

Fluid Milk Sales (All Channels) (Mil LBS)

Fluid Milk Sales Decline has Moderated Over the Last Two Years

-1.3%-1.6%

-2.2%

-2.9%

-1.4%

-0.7%*

Fluid Milk Sales (All Channels)

% Change vs Year Ago

2011 2012 2013 2014 2015 2016

Milk segments that are growing and off-setting part of milk decline: lactose-free, flavored, refuel and whole.

Milk as an ingredient growing through lattes

Favorable pricing in 2015 and 2016 has also benefitted milk sales.

23

* Note USDA 2016

data includes an extra

day for leap year.

When adjusting the

data for the extra

data, milk sales in

2016 are down -1.0%

vs 2015

*Source: USDA ERS 1995-2015; 2016 data reported by USDA AMS

While Fluid Milk Sales have Improved, Sales have not Kept Pace

with Population Growth. Americans are Consuming Less Fluid Milk.

*Source: USDA ERS

24

Per Person Fluid Milk Consumption (Gal)

23.8

18.1

0

5

10

15

20

25

30

35

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Note: 2016 Per capita numbers released in Sep 2017

While Many Factors are Helping to Pull Up Milk Sales, Currently

the Impact of the Negatives is a Little Stronger

Population growth

Branded & Checkoff marketing efforts

Specialty coffees/lattes & smoothies

Favorable retail prices

Innovation – lactose-free & flavored

Whole milk

Decline in cereal consumption

Beverage competition

Non-dairy milk alternatives

Gallon size

Social responsibility issues

POSITIVE IMPACT ON MILK SALES NEGATIVE IMPACT ON MILK SALES

25

Summary

• Total dairy category sales performance was strong in 2015-16

• Dairy benefitted from innovation as well as the trend toward real, fresh and

natural foods

• Cheese and butter were strong contributors to dairy’s growth

• Milk has segments of positive momentum that are off-setting some of the loss

in conventional gallon jugs

• Yogurt production has cooled off after years of strong growth. Greek yogurt

has matured and the breakfast market has picked up many competitors.

26